Question

Timothy Geithner had been the President of the New York Federal Reserve through about 2009, when he was appointed to the position of Secretary of the Treasury by the President of the United States, and confirmed by Congress. Ben Bernanke was chair of the Federal Reserve Board during this same time. (Both Mr.Geithner and Mr. Bernanke have since left their positions). Given that the nation’s economy (and arguably, the World economy) was experiencing turbulence the magnitude of which we hadn’t seen in decades, what are some of the advantages (to the economy, and overall economic policy) of appointing a former NY Fed President as Secretary of the Treasury? What might be some risks (to economic policy making) of this same appointment?

Answer 1

The main advantage is that an economist who knows perils of Govts wrong policies will tread cautiously. Also he will use fair fiscal policy to support monetary policy and this will lead to coordination of policies and hence better results. His understanding with Fed will further help towards that end

But there are some risks. Fed should be independent from Govt control as seen from historic mistakes and govts employment of former Fed members is against this goal. Fed members may then support Govt policies without caring for economic rationale in order to get themselves reemployed in govt